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T
he reimbursement pressures on private physi- these dual financial pressures are the greatest threats
cian practices are very well documented. to the private physician practice, but they are hardly
Payment trends are down, precipitously in alone. Myriad nonfinancial forces, such as govern-
some specialties, or at best stagnant. At the same time, ment regulation and physician workforce shortages,
practice expenses continue to inflate. It may be that also can affect a practice’s stability. So much so that
Figure 1
it brings the long-term viability of the current private
practice model into serious question. Like the Tyran- Medicare charges and receipts trend
Figure 1
nosaurus Rex, will the private practice soon disap- Medicare Changes & Receipts Trend
pear entirely? More importantly, are some physicians $3,500,000
waiting on the sideline watching these trends as their
$3,000,000
hard-earned assets plummets in value?
$2,500,000
Reimbursement
$2,000,000
Pressures are Real
$1,000,000
a more than 10-year trend for charges (blue line) and $500,000
receipts (red line) for a real Midwestern multispecial-
$-
ty group. As can be seen, the group continues to work 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
harder, as evidenced by the upward sloping blue line. Charges Receipts
However, the real income gain on this extra activity Source: Financial reports from a 60-physician multispecialty practice in the Midwest.
is greatly diminished, illustrated by the more gentle
slope of the receipts (red line).
As the delta between these two lines grows wider,
so does the return on extra work performed by physi- insurers on first-time preauthorization requests for
cians. These data represent just Medicare, but the tests and procedures. Additionally, 57% of physicians
trend for other payers is nearly identical. Certain spe- experience a 20% rejection rate from insurers on
cialties have seen dramatic decreases in reimburse- first-time preauthorization requests for drugs. Beyond
ment, particularly for diagnostic testing, which has just the volume impact, these requests have real prac-
historically been a lucrative practice revenue stream. tice cost effects too, manifested in additional staffing
For instance, cardiology has seen anywhere from a requirements.
15% to 35% reduction in reimbursement on certain
echocardiography tests. Similar reductions in office- A Dramatic Increase in Patients’
based nuclear testing have also occurred. Share of the Cost
Further depressing income is the fact that prac-
tices’ expenses are increasing at an average annual
rate of 6%. Because of the high fixed cost (those costs
P atient demand too has negatively impacted vol-
ume. This is largely due to two factors: signifi-
cant increases in out-of-pocket costs and a severe
that don’t fluctuate with volume) nature of private recession.
practices, this inflation is paid entirely out of physi- During the past several years, health costs have
cian compensation. been shifting away from health plans over to indi-
viduals. In his Health Affairs article, “The Growing
Just Increase Production Financial Burden of Health Care: National and State
Figure 2
tion was thrust on private practices that added costs
Workers per hospital insurance beneficiary and managerial complexity and introduced terrifying
Figure 4
Workers per HI Beneficiary
fines and penalties. Beyond Stark— which has grown
5.0 in scope, complexity and number (we’re now up to
4.6
the fourth Stark Rule), there have been many others.
4.1 4.1
4.0
4.0
3.7
Although each well-intentioned, the cumulative effect
of these laws is the need for an infrastructure beyond
3.0 2.9 the financial means of most private practices—un-
2.4
2.2 2.2
less they choose to ignore them. Below are the most
2.1
2.0
2.0
significant acts.
Managing a Physician
Group is a Real Challenge
costs.
Young physicians D
ownward pressures on reimburse-
ment show no signs of abating. The
number of American workers paying for
who want to be
Figure 3
going to get less money, but we just don’t know how
we’re going to get less money.” American population projections
Figure 5
On the positive side, with recent passage of the American Population Projections11
Patient Protection and Affordable Care Act of 2010, 90
Medicare is projected to remain solvent until 2029, 80 65+
85+
12 years longer than before its passage. However, it 70
achieves these gains through assumptions that will 60
require significant innovation in current payment
50
policies. One such innovation may be the advent of
global payments, either based on patient popula- 40
Source: The U.S. Department of Health and Human Services’ Administration on Aging
Succession Planning